Issue
Did CGT event G1 in section 104-135 of the Income Tax Assessment Act 1997 (ITAA 1997) happen in respect of a shareholding in Company A when the taxpayer received shares in Company B?
Decision
No. CGT event G1 did not happen on the payment by Company A of shares in Company B because the requirement in paragraph 104-135(1)(b) of the ITAA 1997 that the payment not be a dividend was not satisfied.
Facts
The taxpayer held shares in Company A.
Some time after the taxpayer acquired these shares, Company A split into Company A and Company B. Each share owned in Company A as at the relevant date entitled the holder to receive shares in Company B.
As a result of the split, the taxpayer received shares in Company B.
The distribution of the Company B shares was debited against Company A's retained profits.
Reasons for Decision
CGT event G1 happens if a company makes a payment to a shareholder in respect of a share owned in the company and some or all of the payment is not a dividend (subsection 104-135(1) of the ITAA 1997).
Subsection 6(1) of the Income Tax Assessment Act 1936 defines 'dividend' as including any distribution made by a company to any of its shareholders, whether in money or other property, but excludes such a distribution if it is debited against the share capital account of the company.
As the distribution of the Company B shares was debited against Company A's retained earnings, it falls within the definition of 'dividend'.
As the shares in Company B are considered to be a dividend the condition in paragraph 104-135(1)(b) of the ITAA 1997 is not satisfied and CGT event G1 does not happen.